WIREDGOV

Claims management companies have pocketed up to five billion pounds of consumers’ compensation for mis-sold Payment Protection Insurance, finds new analysis from Citizens Advice and Citizens Advice Scotland.

In a new report ‘The cost of redress’ the charity reveals how banks’ slow reaction to the mis-selling of PPI created a chance for claims firms to swoop in and take an estimated £5 billion of consumers’ compensation.

Citizens Advice evidences highlights how some consumers are experiencing a range of poor practices by claims management companies including a lack of transparency around fees and problems cancelling agreements.

New figures from Citizens Advice find nearly 1 in 3 (28%) of British adults aged 18+ who have used a claims management company said that the firm put a lot of pressure on them to pursue the claim and 27% said the fee structure was not clearly explained.

Citizens Advice evidence also finds some people end up in debt to claims firms despite their claim being successful.  If a claimant is already in debt to their bank, the bank could decide to use the PPI compensation money to pay off outstanding debts.  The individual then needs to find the money to pay the claim firm, which could be up to £1,000 and if they’re struggling to repay, may experience harsh debt collection practices.  Yet this is rarely explained to claimants.

Early findings from the study, released last year, reveal the prolific use of cold calling by claims management companies. Sixty-three per cent of British adults have been contacted out of the blue by a firm offering to help make a claim for mis-sold PPI with more than half contacted 10 times in the last 12 months. Family meals and work are not spared interruptions from PPI cold calls with 27% and 14% of people respectively reporting these sort of disturbances.  

New figures out today reveals 39% of people who used a claims firm were not aware they could make a claim without a claims management company.  Almost half (47%) of people who had used a claims firm said if they had known about free materials to help them make a claim they would have decided not to use a claims management company.

Citizens Advice wants claims firms and other financial services to be banned from cold calling in order to halt the tide of nuisance calls and protect people from dodgy businesses.

The report highlights how low levels of trust in banks also contributed to the boom in claims firms.  It concluded some consumers are put off making a direct claim about PPI because banks were the ones who mis-sold to them in the first place.  

Citizens Advice Chief Executive Gillian Guy said:

“Consumers have lost out on billions of pounds worth of compensation because banks were too slow to get a grip on the PPI scandal.  By banks originally dragging their feet and providing inadequate redress, claims management companies seized an opportunity to take a up to 25 per cent of people’s compensation for admin work that consumers can do themselves for free.

“Some claims management companies operate well below the standards that are expected and sometimes outside of the rules. The regulator needs to quickly revoke the licences of firms that are not up to scratch. We'd like to see a ban on cold calling by claims companies which would spare people from nuisance calls and protect consumers from predatory firms.

“Trust in banks will never be restored if they don't routinely take responsibility for their actions and act quickly, offering genuine redress, if a problem occurs.  There needs to be a shift in how banks perceive and treat their customers.  Banks need to look at ways they can make money from saving their customers money, not mis-sell them products.”

Citizens Advice Scotland Chief Executive Margaret Lynch said:

“This research lifts the lid on PPI compensation companies’ false promises – and shows they are too good to be true.

“Citizens Advice Scotland has seen cases where consumers actually end up out of pocket after being charged more in fees by claims companies than they gained in compensation.

“In fact, anyone can claim a refund themselves without having to pay commission to anyone.

“Check out Citizens Advice Scotland’s free online guidance or call our consumer helpline so you can decide what’s  best for you before jumping into a potentially costly contract.”

In order to sort out the claims management industry Citizens Advice wants to see:

• Cold calling banned.
• Make sure the use of up-front fees is a thing of the past and firms do not start to use them again.
• BIS should establish a prominent single point of contact for complaints about nuisance calls – instead of being split between ICO and Ofcom.
• Contracts for claims management work should specify that the loan the firm is making a claim for so it’s clear when firms deserve a share of the compensation. This should be included in the rules for claims management companies.

Facts

• 1,050 claims management firms offer PPI claims services (as of September 2013).
• 79% of complaints made to the claims management regulator are about PPI .
• The Financial Ombudsman Service has received more complaints about PPI than any other financial product.
• In 2011/12 almost half of complaints made to the FOS were made by CMCs – check if about PPI.
• Banks have put aside £22 billion to cover PPI compensation.

Citizens Advice

Notes to editors

1. This year the Citizens Advice service celebrates its 75th anniversary. We’ve planned a year of activity running from January to December 2014.  Contact the press office to find out more.
2. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
3. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
4. To find your local bureau in England and Wales, visit www.citizensadvice.org.uk. You can also get advice online at www.adviceguide.org.uk
5. You can get consumer advice from the Citizens Advice consumer service on 08454 04 05 06 or 08454 04 05 05 for Welsh language speakers
6. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.6 million problems from April 2012 to March 2013. For full 2012/2013 service statistics see our quarterly publication Advice trends
7. Citizens Advice service staff are supported by more than 22,000 trained volunteers, working at over 3,000 service outlets across England and Wales.